Software of the Month Club 1996 May/Software of the Month Club 1996 May.iso/mac/ISO9660/ZIPFILES/SBA962.ZIP/F240.SBE

Text File | 1996-02-15 | 5.4 KB | 128 lines

@101  CHAP ZZ

            ┌───────────────────────────────────────┐
            │          DISABILITY INSURANCE         │
            └───────────────────────────────────────┘

Disability insurance is usually designed to replace part or
all of the income of a person who becomes disabled and is
unable to continue work for an extended period, usually 6
months or more, depending on the terms of the policy.  When
obtaining disability coverage for yourself or for your em-
ployees, be aware that there are various levels of incapac-
ity that will qualify as a compensable "disability" under
various disability policies:

    . The least restrictive would be that the insured
      person is unable to perform all the duties of his
      or her regular occupation.

    . At the other extreme, some policies require that
      the insured be unable to perform ANY profession
      for which qualified, or even that the insured be
      confined to a hospital in order to collect bene-
      fits.

Disability policies also differ considerably in the waiting
period during which one must be disabled before being eli-
gible to collect benefits, and the period for which bene-
fits will be paid in the case of an extended disability.
For example, many of the typical group disability policies
have a lengthy waiting period and then only pay benefits
for a maximum of 2 years.  The better policies (which of-
ten are not significantly more expensive) often provide
benefits until the insured recovers or reaches age 65, for
example.

Disability insurance is treated very favorably for tax pur-
poses.  A corporation that provides disability insurance
for its employees is allowed to deduct the premiums it
pays, while the employee is not taxed on the value of such
benefits.  However, no deduction is allowed in the case of
sole proprietor or for the partners in a partnership.  Sim-
ilarly, while an S corporation may claim a deduction for
disability insurance on any 2% or greater stockholder, any
such amount will be taxable compensation to the stockholder/
employee, who will not be able to claim any offsetting de-
duction for the insurance.

The downside of this favorable tax treatment for C corpor-
ation employees is that if the employee who received such
coverage as a tax-free fringe benefit ever collects bene-
fits under the policy, such benefits will be fully taxable.
By contrast, if the premiums were non-deductible (as in the
case of a sole proprietor's disability insurance for him-
self or herself), any disability benefits that may be re-
ceived will be excludable from taxable income.  Neverthe-
less, disability insurance is an important tax-free fringe
benefit that can be offered by an employer, or that you can
provide for yourself if you are an employee-owner of a C
corporation.

@CODE: NJ NY RI

       DISABILITY INSURANCE REQUIRED BY @STATE

The state of @STATE is one of only five states that
requires that employers provide disability insurance cover-
age for their employees.

@CODE:EN
@CODE: HI
@CODE:NF

        ┌───────────────────────────────────────────────┐
        │  HAWAII TEMPORARY DISABILITY INSURANCE (TDI)  │
        └───────────────────────────────────────────────┘

Hawaii is a bit unusual, in that it REQUIRES all employers
to provide TDI coverage to their employees.  TDI benefits
are primarily an income continuation or sick leave benefit,
for up to 26 weeks, for workers who are unable to work.
While workers' compensation insurance (also mandatory in
Hawaii) covers job-related injuries, TDI is a wage replace-
ment system for employees who become unable to work due to
off-the-job disabilities.  (Hawaii also REQUIRES employers
to provide medical insurance coverage for employees.)

An employee does not become eligible for TDI coverage un-
less working at least 20 hours a week for at least 14 weeks
and earning wages of at least $400 during the four most re-
cently completed calendar quarters.  Coverage is also not
required for newspaper deliverers under 18 years of age;
insurance and real estate agents working on commission; for
individuals working for a son, daughter, or spouse; or for
children under age 21 working for their father or mother.

An employer may satisfy its TDI obligation by any of the
following:

    . By obtaining disability insurance from an "approved"
      insurer;

    . By adopting a sick leave policy that is approved by
      the Department of Labor and Industrial Relations,
      Disability Compensation Division; or,

    . Under a collective bargaining (union) agreement
      which contains sick leave benefits at least as fav-
      orable as those required by the TDI law.

As an employer in Hawaii, you may require covered employees
to pay part of the cost of TDI coverage.  You can deduct
from the employee's wages one-half of the premium cost, but
not more than 0.5% of the worker's weekly taxable wages.
However, the maximum wage amount on which the deduction may
be calculated is limited by law to 1/52 of the statewide
average annual wage, as determined each year by the Dept.
of Labor and Industrial Relations (roughly $400 at present).

For specific details on the state law, see Chapter 11.5 of
the book "STARTING & OPERATING A BUSINESS IN HAWAII." or
obtain the "TDI Handbook for Employers and Insurance Com-
panies" from the Disability Compensation Division of the
Hawaii Dept. of Labor and Industrial Relations.